Hospital Operator Settles Lawsuit

Catholic Healthcare West, California’s largest not-for-profit hospital operator, agreed to pay the federal government $8.5 million to settle a whistle-blower lawsuit alleging fraudulent Medicare billings, the Justice Department said Friday.

The government claimed that San Francisco-based Catholic Healthcare West and 13 of its hospitals submitted false Medicare cost reports, kept a separate book of disallowed charges and set aside reserves in case Medicare money had to be repaid.

In settling, Catholic Healthcare denied wrongdoing. Analysts said the settlement amount was unlikely to have an effect on the finances of the company, a 42-hospital chain with $4.8 billion in revenue in fiscal year 2001. The company is in the middle of a reorganization to reverse years of losses.

Russell Hayman, an attorney for the hospital chain, said Friday that the settlement amount was significantly less than what federal officials originally sought. But he acknowledged that there were cost-reporting mistakes made by Catholic Healthcare West employees, which resulted in overpayments to the hospitals.

He said, however, that errors also were made by Medicare officials and that the government’s audit over the last decade turned up cases of underpayments, which Hayman said the hospital company will pursue.

U.S. Atty. John K. Vincent said in a statement that he was pleased with the settlement.

Over the years, the Justice Department has pursued numerous whistle-blower lawsuits accusing hospital companies of cost-reporting fraud.

The allegations against Catholic Healthcare West arose in a lawsuit brought in February 1999 by Joseph Kimball, a former employee. The suit was filed under the False Claims Act, which allows whistle-blowers to get as much 30% of the government’s recovery.

Kimball’s attorney, Paul Scott, said his client will receive $2.48 million.

For Catholic Healthcare West, the settlement is the latest in several whistle-blower lawsuits that have cost the hospital company more than $20 million over the last two years.

In August, Catholic Healthcare West agreed to pay $10.7 million to settle civil charges related to the use of investigational medical devices.

Mimi Park, a senior analyst at Moody’s Investors Service who tracks hospital finances, said Friday that Catholic Healthcare West has made progress in its reorganization. But she said the company’s financial performance still remains weak.

Moody’s latest bond ratings for Catholic Healthcare West were in the low end of investment grade, with a negative outlook for future ratings.